Health Care by Loophole: This system, subsidized by a mishmash of tax loopholes, is unfair. Can't we do better?
By: AARP Bulletin Editors Source: AARP Bulletin Today Date Posted: 2007-03
Behind that Form 1040 you're completing stands the mammoth, complex, contradictory and wildly inefficient U.S. tax law. It has 67,204 pages, and the details and fine print generate some $2.5 trillion from 131 million taxpayers each year.
The tax code is also intrinsically linked to the nation's system of health care. Since 1860, when railroads, then lumber and mining companies first hired doctors to keep their workers healthy and on the job, employers have been the primary providers of the nation's health care protection. That approach flourished during World War II, when wages were frozen and businesses offered free health benefits to attract workers.
Today, employer-financed insurance covers about 160 million Americans—and provides a $140 billion tax deduction for businesses. Workers save another $200 billion a year because they continue to get this insurance tax-free.
There's more. Tax credits, exemptions and deductions subsidize hospital construction, research and the development of new technologies and prescription drugs. Pharmaceutical companies utilize a tax break for manufacturing drugs in Puerto Rico. Health savings accounts are now tax-free. But a health care system financed and subsidized by such a mishmash of tax loopholes is also complex, inefficient, unfair and very expensive. Fixing it will be just as complicated.
At least half of the states are implementing or debating major health care reform plans. Some target children, some target poor children. Some target small-business employees. Some target health information technology. Some involve business. Some, like California Gov. Arnold Schwarzenegger's, mix expanded coverage with shared public-private cost.
But the starting point is that employer-provided health care, with its $340 billion a year in tax breaks, is the cornerstone of the nation's health care system. That cornerstone is crumbling. As more workers shift jobs and more employers outsource work, the percentage of Americans covered by employer-provided policies has dropped from 69 percent to 59 percent in the past five years alone, according to the Kaiser Family Foundation.
Leonard E. Burman of the Urban Institute calls tax breaks that support employer-based coverage "an upside-down tax subsidy" because the greatest benefit goes to those who least need it; because the costs to business have prompted layoffs of low-cost workers and the hiring of contract workers without health insurance; and because it encourages excessive health spending.
Andy Stern, president of the Service Employees International Union, which has joined Business Roundtable and AARP in the Divided We Fail campaign, says simply, "The current employer-based health care system is not the foundation for 21st-century health care reform."
These facts are indisputable: America vastly overpays for the quality of care Americans receive. The number of uninsured Americans is rising. Health care costs, already growing faster than inflation, are a staggering burden on taxpayers, business and America's already anxious families.
Long overdue, the health care reform debate is now under way. Have a voice in this conversation. Tell us what you think. Write us at the AARP Bulletin or contact Divided We Fail.
Additional Related Links:
February 2007 Editors' Letter: Divided We Fail
AARP's Divided We Fail Campaign
AARP CEO Bill Novelli: Saving the American Dream
Healing Our Health Care System
Health Care for All: Big Business to the Rescue (January 2007)
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